Consumers across the UK are continuing to follow familiar patterns in credit card spending and balance management, according to the latest FICO UK Credit Card Market Report for May 2024. As the country enters the summer months, a decrease in spending and balances is evident, but the report also highlights concerning indicators of financial strain among cardholders.
Seasonal Decline in Spending and Balances
May saw a 2.9% decline in average credit card spending from April, bringing the figure down to £805. Despite this drop, spending remains slightly higher (0.6%) than in May 2023, suggesting that while consumers are tightening their belts, they are still spending more compared to the same period last year. This seasonal decline is typical of late spring and is usually followed by an uptick in spending during the summer months, a trend that is expected to continue this year.
In line with reduced spending, average balances also saw a slight decrease of 0.3% from April, now standing at £1,780. However, balances remain significantly higher than a year ago, with a 6.3% year-on-year increase. This rise in balances could signal that while spending has dropped temporarily, consumers are still carrying forward more debt than in previous years.
Rising Missed Payments: A Cause for Concern
While spending and balances followed expected patterns, the report raised alarms over the increase in missed payments. The number of cardholders missing one payment jumped by 8.4% from April to May 2024, reversing the decline seen the previous month. This marks a continuing trend since August 2022, with 1.6% of cardholders missing a payment in May—an increase of 2.5% compared to the same month last year.
More concerningly, the proportion of cardholders missing two payments rose by 6.5% year-on-year, although it fell by 8.1% from April to May, reflecting the drop in single missed payments in April. Despite this, the overall trend remains upward. The percentage of cardholders missing three payments also increased, with a 4.1% rise from April to May 2024, and a significant 13.1% increase compared to May 2023.
The average balance for those missing one payment has remained consistently higher year-on-year for over two years, now reaching £2,225. Similarly, balances for cardholders missing two or three payments have been on the rise since August 2023, standing at £2,685 and £3,030, respectively.
Cash Withdrawals on Credit Cards: Another Red Flag
Another indicator of potential financial stress is the increase in cash withdrawals on credit cards. The report reveals a 2.2% month-on-month rise in the number of cardholders withdrawing cash, with 3.3% of customers doing so in May 2024. Although this figure is still 2.6% lower than in May 2023, the upward trend since March suggests that more consumers are turning to cash advances, which often come with higher interest rates and fees.
Outlook for Lenders
As the summer season approaches, lenders are being advised to remain vigilant. With spending likely to increase, the concern is that fewer balances will be paid off in full, leading to higher average balances and potentially more missed payments.
FICO’s report underscores the importance of closely monitoring these trends as the economic landscape continues to evolve, particularly with inflationary pressures still present. As consumers navigate these challenges, the financial behaviour observed in May 2024 could be a harbinger of more widespread stress in the months to come.